Obama’s “Pay As You Earn” plan to manage student loan debt was not set to be implemented until 2014 but according to a White House press release, the plan will take effect in 2012.
The push for a quicker start of the plan came as a result of the increasing college tuition costs and mounting student loan debt. With the debt topping $1 trillion, the highest it has ever been, Obama said the time to fix the problem is now.
“In a global economy, putting a college education within reach for every American has never been more important, but it’s also never been more expensive,” Obama said.
Junior in accounting Drew Joyner said he thinks the impending problems with student loan debt will cause greater issues within the economy.
“I think it could be the next big financial crisis – like the mortgage crisis – that will drag down the economy and the government,” Joyner said.
With the current recession making it hard for many college graduates to find jobs, Joyner said they get bogged down by their debt. Even with a degree from a credible university, lagging opportunities and a mass of loan debt make it hard for people to be consistent with payments.
“Debt is skyrocketing and people are going to start defaulting on their loans,” Joyner said.
The current policy allows college graduates a six-month deferment period during which they are not responsible for any loan payments. After the deferment period, graduates are required to pay 15 percent of their discretionary income per year toward their debt.
Obama said his proposed plan will drop graduate’s loan payments to 10 percent of their discretionary income. In addition, he said the plan will forgive debt after 20 years of payments rather than the current 25 year timeline.
The cap on loan payments, Obama said, will make debt more manageable and the ability to consolidate debt will make it less likely for borrowers to default on their payments.
Brian McConnell, a junior in sports management, said he thinks the increases in tuition are ultimately to blame for the rapid growth of student loan debt.
“The government should find any means to lower tuition. Maybe they could offer more scholarships or grants,” McConnell said.
McConnell said his friend’s roommate has spent more than the typical four years in college and has accrued $90,000 of student loan debt. Though McConnell doesn’t have any loan debt, he said he thinks that amount of money to pay back would become overwhelming.
“At some point it’s ridiculous to have to pay so much off,” McConnell said.
The “Pay as You Earn” plan will, according to a White House press release, offer more immediate relief for borrowers with large amounts of student loan debt.
“We’re taking steps to help nearly 1.6 million Americans lower their monthly student loan payments,” Obama said.
U.S . Secretary of Education Arne Duncan said the proposed plan for lowering debt payments is the best possible solution to the problem and won’t affect those who don’t have any debt.
“College graduates are entering one of the toughest job markets in recent memory, and we have a way to help them save money by consolidating their debt and capping their loan payments. And we can do it at no cost to the taxpayer,” Duncan said.
“I think the new debt plan will be monumentally helpful,” Megan Jeffries, a sophomore in psychology, said.
Jeffries, who will incur loan debt when she graduates, said she’s happy that the plan will be in place by the time she is responsible for her payments. Jeffries said she had to use partial loans to pay for school because her parents did not meet the requirements for her to receive financial aid.
“It’s not really fair that some students have to take out loans because their parents don’t make little enough to be eligible for financial aid,” Jeffries said.
Though Jeffries will still have debts to pay, she said she’s confident the new plan will help her manage them.
